The Framework Of Checks And Balances Of Interests: Corporate Governance Structure Of The Legal Research

Corporate governance is not only a legal issue but also an economic one. In this paper, I want to present comparative legal research on corporate governance based on the mechanism of balance of power. The essence of corporate governance is the mechanism of balance of power within the corporation, in other words, the mechanism of balance of rights among shareholders, directors and management. In this sense, I want to discuss the mechanism of balance of power between the shareholders?Annual General Meeting (AGM) and Board of Directors, the mechanism of balance of power within the Board, the mechanism of balance of powers between the management and Supervisory Board. In order to discuss the mechanism more clearly, the ownership structure of a corporation and the agency theory will be firstly discussed. Corporate governance derives from the modern corporation抯 property structure. The separation of ownership and managing rights, in detail, the separation of shareholder抯 stock ownership, corporate ownership and managing rights, makes it necessary to establish the mechanism of balance of tights within a corporation. From the viewpoint of agency theory, corporate governance is the mechanism for solving all kinds of agency problems within a corporation. As far as state-owned enterprises are concerned, it is necessary for us to discuss corporate governance based on agency theory. The first issue is the mechanism of balance of power between AGM and the Board. In my opinion, protection of shareholder抯 rights is the basis of the shareholder抯 control over the Board. By a comparative study on common and civil law, it is concluded that strengthening shareholder抯 voting rights is the basis of realizing shareholder抯 democracy. It is regretful that we haven抰 attached enough emphasis on shareholder抯 voting rights in Chinese Company Law. The second issue is to impose duties on the director. In common law, the director owes a duty of care and a duty of loyalty to shareholders and the corporation. Now this has been gradually introduced into civil law. It is necessary for us to introduce such legal concepts, especially the Business Judgment Rule in American legal practice, into Chinese Company Law. It is often argued what is the best way to allocate power between the AGM and the Board. This paper is of the opinion that, abandoning the Centralism of AGM and advocating the Centralism of the Board, does not mean shareholders should abandon controlling power over the Board and management. Both common law and civil law provide that a corporation is managed or directed by the Board, meanwhile, it should be necessary to allocate decision-making power in respect to some major matters between AGM and the Board. I would like to say that the mechanism of balance of power within the Board is extension of the mechanism of shareholders?control over the Board. In this paper, I will discuss some issues such as the independent director, the balance structure of the Board and the mechanism of evaluation of the Board. The independent director plays a greatly important role in improving the independence of the Board, preventing internal control from insiders, and protecting shareholders?rights. However, many scholars doubt whether there is a positive correlation between raising corporate performance and an independent director. It can be understood that an independent director plays limited positive role in improving corporate governance due to the...